Mechanism design

Here is Alex Tabarrok on mechanism design.

Evan Davis on the same issue.

Al Roth on Mechanism Design.

Here is another overview which looks at the issue of market failure more generally.

Repo market for beginners

The FT on Barclays and the 2015 Bund.

The price of the 2015 Bund has moved sharply in the past week, suggesting that the bank could stand to make large profits in the repurchase or repo market, where securities such as bonds are lent in exchange for cash.

A lower interest rate on the cash side of the transaction indicates greater repo demand to borrow a bond. The 2015 Bund has been attracting a cash interest rate of about 1 per cent in the overnight repo market this week, down from about 3.5 per cent last week and well below the 3.5 per cent average overnight repo rate in Europe, set in line with the European Central Bank’s main interest rate.

Such a low repo rate for a Bund is rare. A bank able to lend the bond receives cash at below-market interest rates, which can then be deployed at a profit.

Trading volumes for last Friday and Monday rose to €3.4bn on BrokerTec, the electronic platform on which repo trading is conducted, suggesting that millions of euros could be made this way.

There is more detailed look at the repo market here.